My accountant advised me to do it!
Accountants are not licensed insolvency practitioners unless they have passed JIEB exams and are then authorised to act!
Clients mistakenly assume their accountants are aware of all aspects of insolvency.
Since the Coronavirus COVID-19 pandemic, the UK economy has slowed down, and as such, insolvency has increased. Therefore, it is essential as a director of a limited company to understand what you want from your accountant and, importantly, what they can deliver.
Directors Drawing Illegal Dividends
We have noticed a significant increase in clients who have taken illegal dividends and loans from their companies to avoid tax.
Firstly, to receive a dividend, you must be a shareholder of that limited company.
Secondly, you can’t draw a dividend if the company has made no profit to pay it.
HMRC are now seeking to recoup outstanding tax along with any evasion. However, such payments possibly evade tax, which is illegal.
It should be noted that a director of a company has a legal duty to act responsibly. Let’s say a company becomes insolvent, then the legal responsibility of the director changes, and then acts fairly and equally in the best interests of creditors. Suppose the directors do not act in the interests of the creditors, and they act “wrongfully”. Therefore, risking being personally liable for the company’s debts from the date, they became aware of its Insolvency.
Therefore, a director of the company has no defence. The accountant advised them to do it, as it will not impress company creditors, liquidators or judges in a civil law action.
Overdrawn directors loan account
Directors must ensure their loan accounts are repaid to the company if the company is liquidated.
An overdrawn directors loan account is an asset of the company. Therefore, the appointed liquidator must collect monies owed to the company as part of their duty.
Surely my Accountant should be liable?
Actually, no usually.
Most Qualified Accountants operating in the UK are Members of a professional body, and they personally shall have abbreviated titles.
Examples of professional bodies include:
ICAEW – The Institute of Chartered Accountants in England and Wales
ICAS – The Institute of Chartered Accountants of Scotland
CAI – Chartered Accountants Ireland
ACCA – Association of Chartered Certified Accountants
CIMA – Chartered Institute of Management Accountants
CIPFA – Chartered Institute of Public Finance and Accountancy
The list above in not however complete.
When choosing accountant for advice. Remember, you as a director are responsible.
Talk to John Waller at HBG Advisory for advice, or check out our webpage on overdrawn directors accounts.